Periodic Inventory System and Inventory Costing Methods P 1. El Faro Company merchandises a single product called Smart.

Periodic Inventory System and Inventory Costing Methods

P 1. El Faro Company merchandises a single product called Smart. The following

data represent beginning inventory and purchases of Smart during the past year:

January 1 inventory, 34,000 units at $11.00; February purchases, 40,000 units

at $12.00; March purchases, 80,000 units at $12.40; May purchases, 60,000

units at $12.60; July purchases, 100,000 units at $12.80; September purchases,

80,000 units at $12.60; and November purchases, 30,000 units at $13.00. Sales

of Smart totaled 393,000 units at $20.00 per unit. Selling and administrative

expenses totaled $2,551,000 for the year. El Faro Company uses the periodic

inventory system.

Required

1. Prepare a schedule to compute the cost of goods available for sale.

2. Compute income before income taxes under each of the following inventory

cost flow assumptions: (a) the average-cost method; (b) the FIFO method;

and (c) the LIFO method.

3. Compute inventory turnover and days’ inventory on hand under each of the

inventory cost flow assumptions listed in requirement 2. What conclusion

can you draw?

Periodic Inventory System and Inventory Costing Methods

P 2. The inventory of Product PIT and data on purchases and sales for a twomonth

period follow. The company closes its books at the end of each month. It

uses the periodic inventory system.

Apr. 1 Beginning inventory 50 units @ $204

10 Purchase 100 units @ $220

17 Sale 90 units

30 Ending inventory 60 units

May 2 Purchase 100 units @ $216

14 Purchase 50 units @ $224

22 Purchase 60 units @ $234

30 Sale 200 units

31 Ending inventory 70 units

Required

1. Compute the cost of ending inventory of Product PIT on April 30 and May 31

using the average-cost method. In addition, determine cost of goods sold for

April and May. Round unit costs to cents and totals to dollars.

2. Compute the cost of the ending inventory on April 30 and May 31 using the

FIFO method. In addition, determine cost of goods sold for April and May.

3. Compute the cost of the ending inventory on April 30 and May 31 using the

LIFO method. In addition, determine cost of goods sold for April and May.

4. Do the cash flows from operations for April and May differ depending on

which inventory costing method is used—average-cost, FIFO, or LIFO?

Explain.

Perpetual Inventory System and Inventory Costing Methods.